Most homeowners know the importance of having proper insurance to protect their home and the property inside. However, for many it is not until a disaster strikes that they realize they don't have enough insurance to rebuild their home or to cover their losses. The reality is that the majority of homeowners fall into this category. According to a survey by insurance-services firm MSB, Nationwide, 68% of homeowners are underinsured.
So how do you know if you have enough coverage? Trying to figure out the right amounts of insurance coverage can be frustrating and confusing. To make the process more difficult, it may be hard to get the correct advice from your insurance company or agent. For example, many victims of Hurricane Katrina said their agents had told them they didn't need flood insurance when, clearly, they did. Courts ruled that insurers didn't have to pay for damage caused by flooding.
One way to ensure that you have adequate coverage is to use web tools to estimate replacement costs. One such service is AccuCoverage, this service charges $7.95 and walks you through a questionnaire that usually takes 20 to 30 minutes to complete. Compare the estimate with your policy limits. You'll find them on the declarations page of your policy. If your insurer can't explain discrepancies to your satisfaction, start shopping for another insurer.
If you are in area that is at high risk for disasters such as hurricanes or earthquakes, be sure to get the addition coverage as floods and earthquakes aren't covered by your homeowners insurance. Unless you're prepared to walk away from your home after a disaster, you need to consider such coverage.
Check your "loss of use." Homeowner policies typically provide money to pay your rent and related living expenses while your home is being rebuilt. If the amount offered wouldn't cover you for two full years you may want to consider a higher limit.
Be sure to get "replacement cost," not "actual cash value." It's not just rebuilding coverage that falls short. Many policies restrict how much money you'd get to replace your belongings and may limit or even exclude some common household items from your policy. If you have a policy that pays out actual cash value on your home's contents, for example, you'd get a check for what your possessions were worth when they were destroyed, not what they would cost to replace.
It does come down to this, to be sure you're adequately covered you will need to do a detailed household inventory, writing down all of your possessions and what they would cost to replace. Also be sure you do your do diligence and read your policy from front to back and ask your agent if you have any questions of if you feel uncomfortable in any way.
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